A court has dismissed Adams, Arapahoe and Douglas counties from a lawsuit that arose out of the impending breakup of Tri-County Health Department — a ruling that signals the health agency, not the counties, may end up on the hook for an alleged $50 million penalty.

The pullout of Douglas County from Tri-County Health — and the domino effect it had on Adams and Arapahoe — has placed the counties on a path toward establishing their own individual health departments. The costs of Arapahoe and Adams pulling away from Tri-County could be in the millions.

But on top of those costs, the counties have been pushing back against a government body that says they owe a penalty because of Tri-County’s upcoming end.

At issue is a payment that the health agency may eventually owe to the Colorado Public Employees’ Retirement Association, or PERA, which provides retirement and other benefits to employees of government agencies and public entities in Colorado.

Members of PERA include public school teachers, many university and college employees, judges, state troopers, and other types of public employees.

If Tri-County Health is “allowed to withdraw from PERA without paying the withdrawal liability, all PERA members and employers will be negatively impacted,” a Feb. 1 complaint in a lawsuit filed by the retirement association said.

In a major development in the case, the Adams County District Court on Sept. 2 decided to dismiss the three counties from the lawsuit but denied Tri-County Health’s request to throw out the lawsuit in general, leaving the door open to the possibility Tri-County alone will bear the penalty.

But the health agency may be unable to pay the full cost. The bank accounts and investment accounts tied to Tri-County have a combined balance of roughly $23 million, according to an Aug. 29 court filing related to the health agency.

“All of the counties agree that the PERA liability is the responsibility of (Tri-County), the entity that joined and participated in PERA,” Douglas County said in a statement.

Counties say contract doesn’t require payment

While the counties have argued they aren’t responsible for covering any money Tri-County may owe, PERA’s complaint points to an agreement Douglas County made that called that argument into question.

According to the complaint, the following events, among others, led up to Douglas County’s agreement:

• On Sept. 2, 2021, a Tri-County official contacted PERA asking who they could “engage ASAP to determine an estimate of the [cost] reserves requirement if Tri-County Health Department ceases to exist.” The Tri-County official stressed a report was needed as soon as possible because it was a factor for the counties’ commissioners to determine “if they will stay with TCHD or start their public health department.”

• PERA then arranged for a company to prepare a report estimating the Tri-County disaffiliation costs.

• On Sept. 7, Douglas County’s elected leaders, the board of commissioners, formalized their withdrawal from Tri-County.

• On Sept. 24, PERA provided Tri-County with the report. The report calculated Tri-County’s initial withdrawal liability as $50,235,215, subject to final determination at the date of disaffiliation.

• On Sept. 28, the Douglas County commissioners and Tri-County entered into what’s called an intergovernmental agreement, or the IGA.

The IGA provided that Douglas County agreed to “pay for the services and costs associated with its withdrawal,” the complaint cited.

It added: “Most importantly, Douglas County agreed that ‘if TCHD is dissolved in 2022 or 2023, paying for its proportional share of any expenses incurred as a result of the dissolution ... Such costs may include … the payment of any debt or penalties imposed by Colorado PERA.’”

On the other hand, the court pointed to a lawsuit focused on the validity of Douglas County’s withdrawal and highlighted that the county argued it shouldn’t pay the debt.

“In the stipulation resolving the matter Douglas County stipulated that it agreed to pay its proportionate share of any PERA liability ‘if any is owed’ and if ‘any liabilities or debts are determined by a Court to be owed to PERA.’ But, Douglas County expressly denied any responsibility” for the liability, the court wrote in one of its Sept. 2 orders this year. The stipulation was entered into in February 2022, according to the court.

The court “recognizes the inconsistencies between the IGA and the later stipulation,” the order says. But the court appeared not to address the question of whether the agreement requires Douglas County to pay, instead only ruling that the retirement association didn’t have the right to sue the counties in general.

“While TCHD certainly has an interest in enforcing the IGA, and PERA may certainly benefit from that enforcement,” the retirement association is still not directly tied to the agreement, so it lacks standing — or a valid reason — to sue the counties, the court wrote.

Arapahoe County’s understanding is that the September 2021 agreement between Douglas County and Tri-County does not require Douglas County to pay part of the PERA penalty, Arapahoe County said in a statement. Through a spokesperson, Adams County declined to comment on that question.

As to why all three counties in general aren’t required by state law to pay Tri-County to pay the PERA fee, the court wrote that the relevant law applies to how counties cover costs for “maintaining” a local public health agency — but that the law does not require counties to make payments triggered by the “demise” of an agency.

New player could weigh on agreement

In a separate legal action, the Arapahoe County District Court on Aug. 29 agreed to appoint for Tri-County a “receiver,” a company that acts as an independent arm of the court to oversee the process of putting Tri-County’s financial affairs in order as it prepares to fade away.

In a provision that may be relevant to the PERA case, the Arapahoe court’s order says: “Following consultation with (Tri-County), and upon written notice to the counterparty, the Receiver may immediately terminate any existing contract, agreement, lease or instrument of TCHD which she determines is not beneficial to TCHD.”

Asked whether the receiver could terminate the agreement between Tri-County and Douglas County regarding the potential PERA penalty, Bellann Raile, the primary agent of the receiver, said in a statement that “the receiver is not presently in a position to comment on any pending legal claims at this time.”

In response to the same question, Douglas County’s statement said: “If the receiver believes she has the authority to terminate the Douglas County IGA at some point in the future and she desires to do so, Douglas County will discuss that matter with the receiver at that time.”

‘Stability’ on the way out

The appointment of a receiver “will also create stability for TCHD, which will allow us to continue our focus on minimizing the disruption to residents who need important public health services,” Dr. John Douglas, head of Tri-County, said in an Aug. 30 news release.

Tri-County’s announcement appeared to imply that not all entities to which Tri-County owes money may be paid if money isn’t available.

“Dr. Douglas noted that TCHD expects that all of its vendors who provide goods or services in carrying out public health programs after appointment of the receiver will be timely paid by the receiver in the ordinary course of business,” the news release said. But “other creditors holding allowed claims against TCHD may be paid in their order of priority through the receivership under the terms of the order appointing receiver when and if funds are available.”

Asked whether the receiver is expected to fire some number of Tri-County employees as a cost-saving measure, Raile said in the statement: “No, that is not anticipated at this time, although some employees are transitioning to the three independent county health departments in an orderly manner during the receivership process.”

Tri-County had already long been experiencing staffing changes.

Douglas, the health chief, has said internal polling had shown a vast majority of current Tri-County staff have shown interest in moving to one of the new county-run health departments and expressed optimism that there would be a significant carryover. Tri-County itself had already become thinner.

“Every place saw the great resignation going on, and we weren’t immune to that," Douglas previously told Colorado Community Media. “Last year, we probably were running 30% to 40% more staff choosing to leave than previous years."

The loss of staff has “certainly had an impact” on Tri-County’s services, Douglas said.

With “restaurant inspections, we’ve had to do some triage,” Douglas said in late July. “We’ve had to prioritize riskier settings.”

Tri-County has seen longer wait times for its clinics, said Douglas, adding the health agency had to make some reductions in its sexual health clinics. That area includes family planning, contraceptive services, and sexually transmitted disease and HIV testing services, Douglas said.

Asked whether Tri-County is in danger of having to stop some services before the end of the year when the health agency is formally scheduled to end operations, Douglas said: “I don’t see any in particular that would be predictable that we would have to stop.”